Helping service members with taxes

Issues can be complicated, but help is there

March 28, 2010|By Eileen Ambrose |

Join the Army, see the world - and a complicated tax return.

Maj. Troy Chinevere has been stationed in Texas, Massachusetts and Alabama. He has been transferred for work every three or four years, like the many service members at Fort Meade, Aberdeen Proving Ground and other military bases in Maryland. And such frequent moves can create tricky tax situations.

This year, Chinevere wonders whether there is any leniency for the military under the longtime resident homebuyer credit, worth up to $6,500. The credit was created last year for those who have lived in their homes for at least five consecutive years during the past eight years. They must sign a sales contract for a new principal residence between Nov. 7, 2009, and the end of April, although they have until the end of June to close the deal.

Taxes are complicated, and they can be even more so for service members and their families. Military taxpayers have different types of pay that might or might not be considered part of gross income. Or, if serving outside the country, they might be eligible for automatic extensions.

The IRS offers Publication 3, Armed Forces' Tax Guide, to address some of these issues. Service members and their families also can get free tax preparation on military bases or find information there on where free help is available.

Chinevere bought a home in San Antonio in 2001 when stationed there. About four years later, he was reassigned to Massachusetts, where he purchased another house that he lived in for three years before transferring to Alabama. The 42-year-old is now renting, but he's in the process of moving to Northern California and, yes, buying another house.

If not for the military transfers, Chinevere says, he would have met the credit's residency requirements. "There are probably tens if not hundreds of thousands of service members in the same boat," he says.

The major's question was run by tax professionals who concluded that he doesn't qualify because he never lived five years in a row in one place.

"He has a good point, but the problem is that tax law is basically statutory," says Scott E. Weiner, senior tax analyst with Thomson Reuters Tax & Accounting business. "If you don't have something written in the statute to help you, you are out of luck very often."

But there are provisions in the statute that can help other service members.

The original first-time homebuyer credit - worth up to $7,500 - applies to purchases made from April 9, 2008, through the end of that year. This credit must be repaid over 15 years on your tax return, but without interest. Basically, it's an interest-free loan from Uncle Sam. If you sell the house before the 15 years are up, you must repay the balance all at once.

Last year's homebuyer credits - worth up to $6,500 for longtime residents and $8,000 for first-time homeowners - don't have to be repaid unless you sell the home within three years.

In both these cases, members of the uniformed services, foreign service and intelligence community don't have to repay the credit if they sell their houses because they were transferred at least 50 miles away or ordered to live in government quarters.

This group also gets more time to buy a house and get the credit. Most of us have to have a house under contract by the end of next month to qualify. But the deadline is extended by one year for those in the uniformed services, foreign service or intelligence community who were out of the country at least 90 days last year through the end of April this year, Weiner says.

But as always with taxes, be careful not to try to bend the rules. Another reader asked whether Hawaii counted as outside the United States when determining whether you get more time to buy. No, Weiner says. Hawaii has been a state since 1959.

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